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The traditional notion of the music industry has been well and truly dumped on its head over the past few years, since music started its march from CD shelves to digital shelves. Yesterday, New Zealand’s music revenue results were released, showing just how quick and drastic this change has been, revealing that streaming is well and truly taking over.

The results from Recorded Music NZ, which were released yesterday, show the local industry grew 12 percent in 2015 to $74.4 million, which is the first positive growth in 15 years, indicative of an industry that has embraced and adapted to the digital age, a release says.

In 2013 total music revenue from physical, downloads, streaming and public performance was $66.7 million, dropping to $66.2 million in 2014 and then rising to the current figure last year.

Last year’s figures show streaming brought in $25.7 million (35 percent), downloads brought in $15.7 million (21 percent), physical product brought in $19.3 million (26 percent) and public performance and broadcast brought in $13.7 million (18 percent).

Source: Recorded Music NZ

A pie graph shows just how drastic the shift has been in the way we are consuming and purchasing music. In 2013 streaming took up just a small portion of the pie, at seven percent, while downloads and physical music dominated. Then in 2014, music streaming jumped to 19 percent but the other channels still dominated. Then in the course of a year, streaming moved from 19 percent to 38 percent, dominating the pie, illustrating just how readily New Zealand has embraced streaming services.

“It is a great first step towards a more positive future for recording artists and record companies in New Zealand,” says Recorded Music NZ chief executive Damian Vaughan. “The popularity of music streaming has aided industry growth enormously and our industry is determined to build on the momentum,” he says.

“However, while it is very encouraging that we have returned to growth our industry has spent 15 years fighting the impacts and losses largely due to piracy, estimated to be upwards of $1.5 billion, GDP adjusted,” Vaughan says.

He says streaming services are still relatively new in New Zealand but have quickly established themselves and are now the preferred method of music consumption by Kiwis.

Spotify managing director Australia and New Zealand Kate Vale says New Zealand is a global success story for the platform.

“In four years we’ve amassed almost 550,000 monthly active users, and boast one of the highest Premium conversion rates of any Spotify market in the world.”

She says Spotify launched in New Zealand almost four years ago (in May) to enormous fan fare from early adopters and core music lovers who flocked to the service in droves.

“We’ve done a lot of work since to educate more mass mainstream consumers on music streaming, which has largely been bolstered by an amazing partnership with our telco partner Spark, launched in February 2-14,” she says.

The Spotify Spark partnership serves as a global best practice, she says, and has helped produce some of the highest engagement Spotify has seen worldwide.

“We couldn’t be happier with how that partnership, the strength of the Spotify brand, and our best-in-class product innovation and offering, has correlated into real (and impressive) results for the music industry.”

“We have also continued to innovate and improve our product so it is now more accessible, personalised and intuitive than ever before. Our critically acclaimed Discover Weekly feature, for example, which delivers a personalised playlist to each of our 75 million active users each week, has driven over 1.7 billion streams globally in just five months.”

She says the Spotify team is excited and proud to see the “amazing” results, where Spotify represents a significant portion of the streaming revenue figure being reported.

“Spotify continues to lead the way in proving the streaming model and driving ever-increasing revenue back to rights holders, this is none more evident than in New Zealand.”

Vale says music consumption habits continue to shift, but are also highly personal. “So I think there will always be a market for downloads, just as there will always be a market for CDs and vinyl,” she says.

Vaughan also mentions the market for physical, more specifically vinyl, which has experienced a Renaissance of sorts in recent times.

“Of special note are Vinyl sales which have continued their resurgence in popularity. While a relatively small contributor to the overall numbers, Vinyl sales have increased again to $1.7m of revenue, representing nine percent of all physical sales.”

While the music industry has finally seen growth after 15 years, the revenue coming in still pales in comparison compared to New Zealand companies like Xero. In the year ended 31 March, Xero brought in $32.6 million from the New Zealand market alone, up from $23.2 million in the 12 months ending 31 March 2014.

However, Xero wasn’t profitable, with Xero chief executive Rod Drury saying Xero was foregoing profits and dividends as it invested in expanding its accounting software service to overseas markets.

That said, streaming services also aren’t profitable, yet. According to an article by The Guardian:

“[Spotify’s financial results, published in Luxembourg and seen by the Guardian, reveal that its revenues increased from €746.9m (£537.87m) in 2013 to €1.08bn (£777m) in 2014 – year-on-year growth of 45 percent. However, Spotify recorded an operating loss of €165.1m (£119m) in 2014 compared to €91.2m (£65.7m) in 2013, while its net loss nearly trebled from €55.9m (£40.3m) in 2013 to €162.3m (£117m) in 2014.”

FT reports under the terms of Spotify’s licensing contracts, it must pay out 70 per cent of its revenues in the form of royalties to record labels and music publishers. As a result, while the company’s revenues surged last year to almost €1.1bn, it incurred an operating loss of €165m.

“Pandora reported a net income of -$49.73 million in March 2015, not too different from the -$42.51 million in reported in March 2014. The net income fell even though Pandora reported a quarterly year-to-year revenue growth rate of 18.76 percent. Pandora’s revenue keeps growing as its income keeps falling.

This gave the company a quarterly profit margin of -20.91 percent and a return on equity figure of -9.16 percent. It also shows us that all those legions of Pandora fans and the vast number of songs they download are a very poor investment from a value perspective.”

So, while these streaming services are experiencing huge growth, they’re also putting a lot of money into improving the platforms and paying the artist’s revenue. It’s difficult to know whether this is a sustainable model for the future and the companies will break even or whether the model will eventually crumble.

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